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Authored by Justin Heyes. April 5th 2024

Within the business of international site selection and investment prospects for the datacenter industry in Southeast Asia, one of the biggest considerations is which country to develop in? Southeast Asia is among the fastest growing global markets for adopting advanced technology solutions, with new builds integrating newer technologies including artificial intelligence, making it an obvious choice for developers looking to service the local markets, or to become a transitory point for international data through subsea cables. 

Each country comes with its own appeal; however, these have to be measured against known factors that could cause complications either in the construction of the center, the uptime of the racks, the markets the datacenter will serve, infrastructure, and even unknown factors such as changes in geopolitical or regulatory practices which may affect the data stored within the datacenter itself. 

With all these considerations, one could almost be forgiven for viewing the task as Nostradamian in nature and given that datacenters famously cannot be airlifted to a new location once they are plugged in and operational, become somewhat disheartened by the undertaking.

Fortunately there are known variables that give context to the region itself and allow for a more logical approach. The Southeast Asian Markter CAGR is expected to grow 6.57%, from USD9.68 billion to USD14.19 billion, between 2022-2028 (Arizton, 2023). The three leading contributors to this growth are Singapore, Malaysia and Indonesia, a clear indicator of their favourable position within the region.

This by no means discredits the other markets; the Philippines has seen tremendous development in recent years in response to subsea cables from the US, and also boasts the second largest population in Southeast Asia with the region’s highest average daily internet usage of 4 hours; however the country’s latency issues owing to delays in upgrading cabling infrastructure due to outdated regulations, could potentially hamper the realisation of this potential in the near future. 

Both Thailand and Vietnam have strong demands for datacenters focused on cloud computing, with Huawei, Alibaba, Google, and AWS present in Thailand, as both countries are amid a later start to the digitalisation of businesses. However, both markets are still in a developing stage and may take time to emerge fully ready to capitalise on this.

Comparatively the three leading countries have more established markets that are readily available for investors in terms of infrastructure, available facilities, reliability in service and connectivity; this is understandable given the maturity of the markets and the collaborative efforts between the three nations, but does weigh heavily in their favour.

Of the three, Malaysia offers the most potential for investment; while Singapore is exceptionally well connected and the current leading hub in Southeast Asia, the relative size of the country leaves little room for the introduction for in-demand hyperscale projects, and the growing requirements for resources (data centers currently consuming more than 7% of the city-state’s total electricity), have in recent years seen a moratorium, and the introduction of stringent regulations in order to address this issue.

This shift in the landscape has seen datacenters developing in both Malaysia and Indonesia to provide an answer to the deficit in capacity, benefiting from an abundance of land for the development of larger facilities, as well as comparatively lower operational costs. Capitalising on this has consequently accelerated the maturity of both markets. While Indonesia does have the largest population in the region, Malaysia’s stability as a natural disaster free country does have an obvious appeal.

One notable area where Malaysia has the advantage comes from the country’s already established infrastructure; with strong connectivity through terrestrial links spanning the country, access to ample water, and, through proactive measures taken with the national electricity provider, Tenaga National Berhad (TNB), a solid power grid, which even extends to the formation of a new “green lane” for data centers. This strategic offering makes environmentally responsible solutions available to datacenter operators; expediting access to power, on-boarding, and approvals simultaneously.

The government in Malaysia has also been exceptionally proactive in their planning to accelerate the path for Malaysia to emerge as ASEAN’s next datacenter hub. Favorable policies and regulations from the government have played a pivotal role in attracting new investments in datacenters, without the need for local partners. Initiatives such as “Malaysia’s Digital Economy Blueprint” are driving digital transformation in the public sector, with a target of achieving 80% utilization of cloud computing storage. Sectors like BFSI (Banking, Financial Servies and Insurance) , Manufacturing, IT, and Logistics are rapidly digitizing, increasing demand for big data analytics, and IoT technologies, and in turn propelling datacenter infrastructure demand.

This potential has already been recognised by major players within the industry such as AWS, Google, Microsoft, STT GDC, Bridge Data Centers (Chindata), Keppel, Yonder, NTT and more having a presence in the country, with future plans to expand further. With room for growth outside of the already established hubs of Johor and Kuala Lumpur, particularly in the north of the country in Kedah which offers a healthy alternative for large consumption datacenters fitting new AI racks, as well as access to newer subsea cables.

Malaysia’s strategic location and geopolitical neutrality could see the country press home its advantages through investment, establishing itself as a multiple hub country and in turn accelerate realising its potential as the next leading data center hub further. The development of landing stations and end points across the country would introduce new subsea cable routes establishing alternative connection points for international businesses, as well as further demand within the industry itself.